Most every state has some form of the Mortgage Credit Certificate. Here are the details of how the program works in North Carolina.

The Mortgage Credit Certificate gives qualifying first time home buyers a financial benefit when filing their income taxes that is better than the typical mortgage interest deduction.

You can deduct 30% of the interest paid as a dollar-for-dollar tax credit, with a $2,000 cap!

The Mortgage Credit Certificate gives you a really strong deduction. Here’s an example of how it works on a 30 year fixed rate mortgage of $150,000 with an interest rate of 5%.

• $150,000 – Loan amount
• $7,500 – 1st year interest
• $2,250 – 30% of annual interest
• $2,000 – Actual tax credit with $2,000 cap applied

If you owe $10,000 in income tax the credit would reduce your tax bill to $8,000.  That’s $60,000 saved over the life of the loan.

Keep in mind that the remaining interest of $5,500 (70% of the annual amount) in this example can still be used as a tax deduction, which will further reduce your tax bill.

You can modify your W-4 withholding info with your employer and enjoy the benefits of the tax credit in every paycheck.

There are 4 requirements that must be met to qualify for the North Carolina Mortgage Credit Certificate:

1. First Time Home Buyer
2. Primary Residence
3. Maximum Qualifying Income
4. Sales Price Limit

First Time Home Buyer

Believe it or not, you could have actually owned a home in the past and qualify as a first time home buyer under the Mortgage Credit Certificate guidelines. The rule is you must not have owned a home as your primary residence in the past 3 years. So let’s say you owned a home 4 years ago, sold it, and have been renting ever since. Under the program guidelines you are a first time home buyer.

Primary Residence

The home you purchase must be your primary residence. It cannot be a second home or an investment property.

Maximum Qualifying Income

The qualifying income for the Mortgage Credit Certificate varies for each county in North Carolina. Here are the limits for Wake County. You must earn less than these amounts to qualify.

1 Person – $76,000
2 People – $76,000
3+ People – $88,000

Sales Price Limit

The home you purchase must be priced under $220,000 to qualify. This amount is the same for all counties in North Carolina.

If you are a first time home buyer who qualifies for the Mortgage Credit Certificate, please pick up the phone and call me right away. Homes prices are low, selection is great, interest rates are amazingly low. There’s never been a better time for you to buy your first home.

No decrease in up front premium this time around.

The recently announced increase in MIP on FHA loans will be 25 basis points, or 0.25%.  This latest MIP increase is scheduled to take effect on all loan case numbers assigned after April 18, 2011.

Keeping with our $200,000 loan example, this represents a $42 per month increase in the payment amount.

Why the increase?  Just as before, FHA MIP rates are being increased in an effort to keep the housing administration operating according to statutes that govern its minimal reserves.  By law the FHA must maintain 2% capital reserves.  According to David Stevens, FHA Commissioner, capital reserves have been below 2% for the previous two accounting periods.  At current rates, best case predictions indicate capital reserves will bot rise above 2% until 2015.  Some predictions actually have the FHA capital reserves going negative, which would require a transfer of funds from the treasury.  Not good.

What a mess, huh?  I’m just speculating here, but two increases in the FHA MIP rates in a six month period probably means someone is very concerned about the solvency of the agency.  I totally get the fact that the FHA running out of funds cannot happen.  But I also understand the potential negative effect of higher monthly payments on consumers.   The home buying public in general has struggled to stay current on mortgages.  Increasing monthly payments will push some marginal buyers out of the market and at the very least challenge some future borrowers dealing with reduced employment.

Personal opinion?  This is the perfect time for private industry to step up and take a big chunk of the mortgage business away from the federal government.  Maybe that wouldn’t be such a bad thing. Several large private firms competing for a place in the mortgage markets could have a positive impact on pricing of consumer home loans.

The bottom line here is, if you are considering buying a house in the next few months, get ahead of this increase.  Get busy looking for a home while interest rates are low and before the FHA implements the new MIP rates.  All you have to do is be under contract by April 18.  That’s about eight weeks from now.  Contact me and I’ll be glad to meet with you and get you started searching for your next home.

I’ve heard a few potential home buyers say they are waiting for the market to hit bottom.  Although that sounds like a noble cause, in reality it’s extremely difficult to get right.

The only way to truly know the real estate market has hit bottom is when you see prices start to increase.

But let’s suppose for a moment the assumption that house prices will continue to fall is correct.  How much is reasonable?

Since 2007, the first year we began to see declining prices in the Raleigh real estate market, prices have declined on average somewhere around 10 – 15%.  That process took four years.

For the sake of discussion, lets assume another 10% decline in prices in the next 12 months.  This would be four times faster than it occurred during the worst decline in most people’s lives.  But we have to have some number to work with here, so let’s go with 10%.

Now back to the effect of rising interest rates. The next big question is will mortgage interest rates stay the same, decrease, or increase?  We consistently hit 4.5% now, which is as low as rates have been in recorded history, so let’s also make the assumption that rates will not decrease.  That leaves us to guess whether they will stay the same or increase.

If rates stay the same, and house prices decline, there is no discussion to be had.  You will pay less for your house.  Period.

But what if home prices were to decrease by 10% and we entered a period of rising interest rates where a 1% increase occurred.  Do you think this combination is likely?  Here’s how the math works out on that scenario.

Most people think declining house prices always means lower cost.  Not always.  In this scenario, rising interest rates destroyed any potential savings.  An increase of 1% in the rate resulted in a slightly higher monthly payment and total interest when applied to a 10% lower house price.

Do you think that scenario is possible?  Declining prices and increasing interest rates?  How about stable prices (the elusive bottom) and rising interest rates?  Let’s look at the math on that one.

That’s a very real $145 monthly increase in payments.  Not to mention the additional $52,000 in interest over the life of the loan.  Is it possible that home prices could stabilize in 2011 and interest rates could increase?  It’s possible.

The bottom line is I really don’t know what will happen with prices and rates.  Neither does anyone else.  But we can talk probabilities.  Rising interest rates will destroy just about any reasonable decrease in house prices.  The only scenario that is a win for a home buyer is for prices to decline AND rates stay the same or drop.  Which are you willing to bet on?

Over the past 3 years prices in the Raleigh real estate market have fallen at least 5-10% from their peak.  More in certain areas.  This means that if you buy a home now you will pay taxes based on a higher assessed value.

The good news is that property taxes in Raleigh (and in North Carolina in general) are quite a bit lower than many other markets.  I help lots of people relocate to Raleigh and the desire to pay less in property tax is given as one of the top reasons for moving.

A good way to estimate property tax in Raleigh is to use 1% of the home’s sell price.  Because prices are low, this estimate might be a little low too, but it will be very close.  This 1% of sell price method is the same way many lenders estimate property taxes on their Good Faith Estimates.

If you ever want to know the exact property tax amount on a given property, just contact me and I’ll be glad to look it up for you.  You can also check this page on the Wake County website to look up the exact property tax rates for various cities.  There is a Wake County tax rate and an additional rate for the city in which the property is located.  The two rates added together will give you the tax rate for any particular home.

Once you buy a home in the Raleigh area, you may want to ask the county to lower the accessed tax value.  I can put together the recent sales info for your neighborhood to support your case.  The feedback I have received is that the county is saying no to most requests for a lower tax value.  But it never hurts to try.  And if we quit asking altogether they will not feel any pressure to do anything.

Property taxes in Raleigh is just one of many things that attract people from all over the country.  Our relatively mild climate, robust job market and economy, close proximity to the beach and mountains, and great schools and universities combine with a low property tax rate to make Raleigh a very attractive place to live.

There are logical steps to buying a house that should be followed if you want to have a good experience.  The following guidelines are based on the positive experiences of hundreds of home buyers who followed a practical series of steps to buying a house.

Use free tools to do research

There’s something to be said for doing your own research.  And there are plenty of free tools out there to help with this.  There are online home search tools, relocation guides, home value tools, and automated listing update services.  And of course you can always read this blog for the latest tips on buying a house.

Doing enough of your own research to know what questions to ask is one of the most important steps to buying a house.

Consult with a professional

Like I said before, there are lots of moving parts.  Buying a house is a complex process and having someone who has helped hundreds of people with this big decision is invaluable.

Your real estate professional will guide you from this point forward and help you do two very important things.

• Find the house that’s right for you
• Stay out of financial and legal trouble

The good news is that it doesn’t cost you a single penny to have a real estate professional help with your home purchase.

Get pre-approved for a mortgage

This has always been a good idea, but with recent changes to the North Carolina real estate contract it’s no longer an option.  Your loan must be fully approved during the due diligence period or you risk losing your earnest money and all of the expenses for things such as inspections, appraisals, and title searches that have already been paid.

Getting the loan approved except for providing an address to the mortgage underwriter may be the single best thing you can do to assure success in the home buying process.

Mortgage pre-approval will get you a better price on your house, allow you to invest less in the due diligence fee, and could make the difference between closing — and not closing.  It’s that powerful.

Find your perfect home

Now that you’ve done your research, consulted with a professional, and have your mortgage pre-approved, it’s time for the fun stuff!  Finding a home that will be just right for you.

I’ve created a system called Homes By Email that leverages technology to make sure you see every home that matches your criteria.  It also gives you a free, private website where you can look at rich details of each home and organize them into folders of your favorites and possibilities. As your agent I can also suggest homes you should consider.  My suggestions will be based on the experience of being in the market on a daily basis and what I learn about what your perfect house looks like from our consultation.

Once we know exactly what homes you like best, and which ones fit your financial needs based on pre-approval, we go and look at each one.

If you have followed all the previous steps to buying a house up to this point, you are looking at the very best houses that fit your budget.  You are in control and the fear of the unknown has simply melted away. It doesn’t get any better than this!

Negotiate the very best deal

Research is the key.  Know what the seller paid.  Know what their mortgage is and how much equity they have.  Know how long they’ve been on the market.  Know what homes have been selling for in the neighborhood.

Your real estate professional can show you all of this and more.  Knowledge is power.  Make sure you’re represented by someone who is professionally trained and has a record of success in residential real estate negotiations.

Close and celebrate

If you’ve followed the logical and proven steps to buying a house that have been presented here — you will indeed be celebrating!  Buying a home doesn’t have to be a scary, uncertain experience.  If you tap into the experience of hundreds who have gone before you you’ll be able to enjoy the moment as everything comes together just as you planned.

Call me or send me a message if you would like to talk.  I’m here to help!

The new North Carolina real estate contract is a good place to start to get an answer to the “what are closing costs” question. It also defines when the buyer must pay which is very important to know as well. Let’s go through it and list the most important closing costs.

Down Payment

This is a percentage of the purchase price that is dictated by the type of mortgage you are getting.  Some typical amounts are 3.5% for FHA and 5% minimum for conventional.  Of course if you put 20% down you will not have to pay Private Mortgage Insurance (PMI).

Due Diligence Fee

This is a fee that buys time to fully investigate the property and decide whether to proceed with the purchase, or not.  There is no set dollar amount for this and it is negotiated between the buyer and seller.  Since this is a new feature of the NC real estate contract, we don’t have any real history to go on quite yet with regards to acceptable amounts.

I can tell you that more time typically means more money, so being well prepared for your home search process can save you money here.  The due diligence fee is paid when the offer is accepted.

Earnest Money Deposit

This is the good faith amount paid up front towards the purchase price.  Earnest money is also negotiable between the buyer and seller, but we have a pretty good idea of some amounts that have been acceptable in the past.  Anywhere from 1-3% is typically what is offered.

This money is held in trust and applied towards the purchase price at settlement, unless the buyer breaches the contract.  The earnest money is paid when the  offer is accepted.

Home Inspections

Home inspections occur during the due diligence period and are paid for at the time service is rendered.  A home inspection on a typical 2500 square feet house costs about $340.  Termite inspection adds another $75 and a radon test adds $150.

Other home inspections that might be necessary are well/water and septic system.  If your new home is supplied with city water and sewer service neither of these are necessary.

Property Appraisal

An appraisal is done during the due diligence period and costs about $400.  It is due the time of service.  FHA and VA loans have a slightly more expensive appraisal that costs $450.

Property Survey

The cost of a survey is about $300 for a typical house in a subdivision.  Larger lot/land sizes can cost more.  This is paid at settlement.

Attorney Fee

The attorney fee is approximately $525 and includes title search and preparation of all documents.  This is paid at settlement.

Mortgage Fees

After the down payment, this will be the largest single charge for your home purchase.  The amount varies greatly depending on what type of loan you choose, however, you can expect to pay about 1-2% of the purchase price for mortgage fees.  This includes items like PMI (if applicable), loan origination, flood certification, etc.  Your lender can be much more specific at the time of loan application and this is due at settlement.

Escrow Reserves

This is an advance payment of home owners’ insurance and property taxes.  It can also vary, depending on the time of year and whether the current tax bill has been paid.  Expect to pay about 1% of the purchase price for escrow reserves at settlement.

Title Insurance

This amount varies on a sliding scale depending on the price of the home.  A $200K home would have a title insurance cost of about $365.  This is paid at settlement.

Other Misc Fees

There are a few smaller items that can show up on a settlement statement such as HOA transfer fee, overnight mail fees, and a home warranty if you choose to purchase one.  These misc fees are typically due at closing as well.

You started out by asking “what are closing costs?” and I hope this article gives you a little better idea what to expect.  If you’d like a more exact estimate of what closing costs would look like for your particular purchase, that’s part of what we do at our free initial buyer consultations.  Just contact me to schedule an appointment and I’ll be glad to over this in more detail with you and answer any questions you may have about the home buying process.

Relater Article:

Closing Costs When Selling A House

Finding A House

First and foremost I’ll bet your main concern is finding a house.  The right house.  Do you need a buyer agent to find the best house for you?

You could look for your next home on your own.  Some good sources might be the newspaper, riding around, searching various websites and recommendations of friends and family.  The concern with these sources is that they are incomplete listings of houses for sale.  The most complete would be websites, but even those are cluttered with old data of homes that have already been sold.  Ever call about a listing only to find out it’s already under contract, or perhaps even closed a while back?

One reason you might need a buyer agent is to make sure you know about every single home for sale that matches your criteria.  A good agent  will have a system in place for making you aware of ALL homes that you would want to consider.  And they should be actively suggesting ones you may want to look at based on what they know about your specific needs.  A good buyer agent will have knowledge and experience in the local market and can help you pinpoint the very best matches.

Looking At Houses

Once you find a home that might work, you need to see it.  Do you need a buyer agent to see homes for sale?  You could call the listing agent for each house and schedule an appointment with them.  But if you call the listing agent to see every home you will be subject to their schedule and availability.  Trying to see 5 houses on a Saturday afternoon could burn up a lot of extra time as you wait on the availability of 5 different agents.

By contrast, when working with your buyer agent you will be able to go directly from one home to another with direct access to each one.  No waiting and no wasted time.

Evaluating Condition And Price

If you decide to go it alone, you can research each house yourself.  Or you could ask the listing agent when you have them for a few moments at each showing.

Just be aware that the listing agent works for the seller and his/her job is to get you to pay the most money with the best terms for the seller.  Do you think they will point out things you might want to be concerned about while showing you the house?  Will they tell you how the price of the house compares to others in the market?

If you use a buyer agent both of these problems become non-issues.  To begin with they will represent YOU and they have the legal charge and responsibility to get you the lowest price and best terms.

Any known issues with the home will be pointed out to you, as well as how the home compares to the price of others.  Like siding that could be a maintenance issue.  Or how the location or certain features of the home affect value.  How the home price compares to recent sales in the neighborhood.  How foreclosures in the area have impacted home prices.  You will have a skilled professional guiding you as you sort through the myriad of complicated issues that should be considered when purchasing a home.

Making An Offer

Do you need a buyer agent to make an offer on a house?   You could make an offer yourself.  Just make sure you read everything very carefully and consider how real estate and contract law works so that you don’t get yourself into trouble.  You could even hire a real estate attorney to help you put the offer together.  Just be aware that this is an additional expense.

Whatever you do, please do not have the listing agent put the offer together for you.  Remember, they represent the seller and are legally charged with the responsibility of getting the highest price and best terms for the seller.

If you choose to use a buyer agent, they will bring all the work that has gone into selecting your dream home together and help you prepare an offer that gets you the best possible price and terms and keeps you as safe from harm as possible.  Real estate agents go through extensive training on real estate and contract law.  And as your agent they are legally bound to apply all that knowledge and skill in your best interest.

Ultimately It’s Your Choice

Do you need a buyer agent?  In my opinion you do.  But you will have to make this choice for yourself.

If you do decide to do this alone, be sure to sign up for updates to this blog.  I publish everything you will need to know to buy a home yourself and it’s all here for you to use as you see fit.

If you choose to use a buyer agent, I’d be honored to help you.  You can read what my past clients have to say here.  And you can contact me at the phone number on this page or by sending me an email here.  And the best part is that getting my help with purchasing your home does not cost you one penny.

United has tracked the migration patterns of its customers since 1977.  They use a metric of 55% or more of the moves for a state being the trigger for determining how that state ranks regarding relocation patterns.  A state where more than 55% of the moves are into the state is rated as high inbound. When more than 55% of the moves are out of the state it’s rated as high outbound.

North Carolina had a score of 57.8% giving it a high inbound relocation rating for 2010.  As a matter of fact North Carolina ranked number 3 on the list. This is up from the number 10 position in 2009.

Early on in my real estate career I began to connect with clients relocating to North Carolina.  Our state, and the Raleigh area in particular, has long been a popular destination for people who are relocating.  The main reasons that I run into are job transfer, moving to be near family, seeking a warmer climate, more evenly paced lifestyle, and even retirement.  That last one always amazes me, but I help about a half dozen or so people relocate here every year who are either retired or will be retiring soon.

People relocating to North Carolina have needs that are a little different from those who are making a local move.  When someone moves a great distance their networks get broken.  All the business and services they used get left behind and they have to find a new doctor, dry cleaner, lawn service, accountant, and so on.  They don’t know the area and have to figure out where all the things they want to be near are located.  There are always questions such as what are the schools like?  Where are the fun things to do?

As we look ahead and wonder what 2011 holds for the local real estate market the fact that North Carolina continues to be such a popular relocation destination will definitely be an advantage.  And that’s a good thing for the cultural makeup of the area as well.

If you are considering relocating to the Raleigh, North Carolina area this year be sure to get in touch with me.  I’ve lived here all my life and can probably answer whatever questions you might have about life in this wonderful place.

Better Chance of Loan Approval

This is huge!  Last minute loan approval issues is the number one reason for stressful and costly delays in real estate closings. These issues, if serious enough, can even cause the loan to be denied and the closing to fail to occur.  In the past this could have cost the buyer the loss of earnest money, inspection fees, appraisal fees, title search fees, and survey fees.  On a $200,000 purchase this could have resulted in the loss of over $3,600.  And the emotional loss of the home you carefully selected for your family’s future needs.  The chance of this catastrophe has been greatly reduced with the new contract.

The new contract does not have a loan contingency built in.  Scary? Not really. Instead the buyer has the opportunity to seek loan approval during the due diligence period.  Savvy home buyers will have the loan pre-approved before ever beginning their home search and the lender will simply be waiting for an address to put on the application.

This should mean zero chance of a last minute surprise in the loan approval process.  And do you think your offer might be more competitive, even get you a better negotiated price, if you present documentation to the seller that your loan has already been approved?

Less Risk of Buying A House With Serious Problems

You will have the entire due diligence period to thoroughly inspect the house for any issue you have concerns about.  And you can terminate the contract without loss of earnest money if any of the inspections or tests do not meet YOUR criteria.  For example…

If an inspection reveals that the only way separation in hardwood floor boards can be repaired is to replace all or a large portion of the flooring, you can now choose to terminate the purchase.  In the past this would have been considered cosmetic and not a “necessary repair” if the separation was within the tolerance set by industry guidelines. If you don’t like the way the gaps in the floor look and the seller will not repair it the way you want, simply terminate the contract.

If a radon test indicates high levels and you don’t want a radon fan strapped on the side of your home, you can terminate the contract.  In the past, the buyer had to accept the house with a radon mitigation system installed by the seller, or risk losing the earnest money deposit.

Simplified Repair Negotiations

This one thing alone will make your home buying experience much more enjoyable.  While repair negotiations will not be eliminated, you – the buyer – will have much more control over what you will accept and what you will not.  The old contract had a list of “necessary repair” items that the seller was obligated to repair or else risk being in breach of contract.  And repair only meant getting the item to work in a basic, functional way.

Buyers and their agents could not insist on specific ways in which the repairs could be handled or put any specifics on the cosmetic outcome of the repair.  And if an item needed attention, in the opinion of the buyer, and was not on the necessary repair list, the seller was under no obligation to do anything.

This has all changed now.  When buying a home you have the right to ask the seller to repair or address any issue that bothers YOU.  And if they refuse, you have the option of terminating the contract.  It’s your sole decision what is important and was is not.

Less Chance of Missing Dates

The old contract had at least eight dates for contingencies.  And some of the dates were dependent on the timing of other things in the contract.  It was complicated and quite frankly there was much opportunity to get into a situation where you would have to continue with the purchase under circumstances you were not entirely comfortable with, or risk losing the earnest money deposit.  Now there are only three dates.  The effective date of the contract, the due diligence date, and the settlement date.  You simply get all investigations done by the due diligence date and either proceed to settlement or terminate the contract.

Seller Pays Buyer Expenses If They Breach The Contract

Under the old contract, if a seller could not deliver clear title at closing, they had to return the earnest money, but the buyer would suffer loss from expenses related to inspections, appraisal, title search, and survey.  This could easily total over $1400 that the buyer would have to eat if the seller breached at the last minute.  Not any more.  The new contract provides explicitly for the reimbursement of these buyer expenses in the event of seller breach of contract.  The exact language calls for  reimbursement of any reasonable costs actually incurred during the due diligence period.

So if you’re planning to buy a house soon don’t let the new NC real estate contract intimidate you.  Yes, there is more responsibility on the buyer to get all contingencies completed by a certain date.  But as you can see you will have more control than ever before over the circumstances under which you will accept the house.  Being well prepared to begin your home search is critical to your success.  Please contact me if you would like to discuss how to be totally prepared to successfully buy your next home.

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NC Real Estate Contract Has Big Changes For 2011

Due Diligence Period: The biggest change to the NC real estate contract is the addition of a due diligence period.  This is a mutually agreed upon period of time that the buyer will have to fully investigate the property and decide whether to proceed.  The length of time and the fee for the due diligence period are negotiable between the buyer and seller.  The buyer purchases this period to fully contemplate the purchase of the property and may terminate the contract for any reason or no reason, and at their sole discretion, prior to the expiration of the period.

Due Diligence Fee: A negotiated fee will be paid to the seller by the buyer for the right to conduct due diligence.  It would stand to reason that the longer period of time required by the buyer, the more the cost of the fee.  The fee becomes the property of the seller and is a credit to the buyer upon closing.  It is important to note that this does not replace the earnest money deposit.

Due Diligence Process: During this period the buyer must complete any of the following items that are important to them and critical to completing the purchase.

• have all inspections performed
• secure final approval for any financing
• review all relevant property documents
• investigate insurance availability and affordability
• have the property appraised
• have the property surveyed
• investigate zoning, schools, proposed roads, etc
• investigate potential flood hazards and and flood insurance requirements
• any other investigation the buyer wishes to perform

Gone is the process of inspecting the property and then debating what is a “necessary repair.”  The buyer is free to request that the seller make any repairs and improvements they wish without regard to whether the request is for an item on the previously used necessary repair list.  Likewise, the seller is free to refuse to make any repairs or improvements.  The buyer can accept the property in its as-is condition, negotiate a written agreement as to what will be repaired, or terminate the contract prior to the expiration of the due diligence period.

Note: There is no longer a finance or appraisal contingency. These matters must be resolved prior to the expiration of the due diligence period.

Simplified Dates: Eight dates have been reduced to only three.  The new NC real estate contract contains 1) effective date 2)  due diligence date 3)  settlement date.

Seller Breach Provision: In the event that a seller breaches the contract, or materially fails to comply with their obligations to deliver the property at settlement, both the due diligence fee and the earnest money deposit are returned to the buyer.  The seller is also now obligated to reimburse the buyer for reasonable costs actually incurred during the due diligence period.

There are other changes as well, however, this pretty much covers the major differences between the previous contract and the new one.  From the big picture perspective, I think that this new real estate contract gives both sellers and buyers more protection from harm and levels the playing field with regards to risk.  There are new considerations that should be made by sellers before they list their property for sale and certainly new considerations that any responsible buyer should think through prior to beginning the home search process.

Contact me if you would like to discuss how this new contract applies to your specific situation.

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5 Reasons The New NC Real Estate Contract Will Benefit Buyers